VINYTHAI PUBLIC COMPANY LIMITED REPORT AND INTERIM FINANCIAL STATEMENTS FOR THE PERIODS OF THREE MONTHS AND NINE MONTHS ENDED 30th SEPTEMBER, 1998 To The Board of Directors and Shareholders of Vinythai Public Company Limited I have reviewed the accompanying balance sheet of Vinythai Public Company Limited as at 30th September, 1998, the related statements of earnings and cash flows for the periods of three months and nine months then ended and the related statements of retained earnings and changes in shareholders' equity for the period of nine months then ended in accordance with standards established by the Institute of Certified Accountants and Auditors of Thailand. A review of such interim financial statements consists principally of obtaining an understanding, by enquiries, of the accounting system for preparation of the financial statements, making an analytical review of pertinent financial data and making enquiries of certain officials of the Company who have responsibility for financial and accounting matters. Because it is substantially less in scope than an examination in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole, I do not express such an opinion on the financial statements referred to above. In 1997, Thailand experienced severe economic problems and financial crisis, which are currently continuing. The crisis has caused a significant effect to many business sectors by varying degrees. However, the financial statements under report have been prepared under the going-concern basis, which presumes that the realisation of assets and settlement of liabilities and obligations will occur in the ordinary course of business of the Company. Based on my review, I am not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles. Narong Puntawong Certified Public Accountant (Thailand) No. 3315 BANGKOK : 30th October, 1998. (UNAUDITED/BUT REVIEWED) VINYTHAI PUBLIC COMPANY LIMITED BALANCE SHEETS (Thousand Baht) As at 30th September Note 1998 1997 ASSETS CURRENT ASSETS Cash in hand and at banks 2 171,113 74,111 Accounts receivable - trade General 761,398 882,530 Related parties 4 169,764 222,404 Less: Allowance for doubtful accounts (30,000) (10,100) Accounts receivable - trade, net 3 901,162 1,094,834 Amounts due from related parties 4 302 1,532 Inventories 595,306 580,296 Other current assets Prepayment 25,114 15,063 Others 63,391 39,348 88,505 54,411 TOTAL CURRENT ASSETS 1,756,388 1,805,184 INVESTMENTS Deposit with financial institution 5 20,420 20,420 Related parties 6 651,972 608,065 672,392 628,485 PROPERTY, PLANT AND EQUIPMENT - net 9,785,639 10,114,704 OTHER ASSETS Pre-operating expenses - net 715,498 743,973 Deferred share flotation expenses - net 56,060 59,509 Others 25,370 25,463 796,928 828,945 TOTAL ASSETS 13,011,347 13,377,318 The accompanying notes are an integral part of the financial statements. (UNAUDITED/BUT REVIEWED) VINYTHAI PUBLIC COMPANY LIMITED BALANCE SHEETS (Continued) (Thousand Baht) As at 30th September Note 1998 1997 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank overdrafts and bank loans - 5,060 Accounts payable - trade General 122,119 110,973 Related parties 4 138,402 196,098 260,521 307,071 Current portion of long-term loans 7 934,239 928,480 Amounts due to related parties 4 239,222 119,467 Other current liabilities Accrued interest expenses 75,566 76,470 Accrued expenses 81,806 65,019 Others 136,718 126,824 294,090 268,313 TOTAL CURRENT LIABILITIES 1,728,072 1,628,391 LONG-TERM LOANS - net of current portion 7 8,311,133 8,635,889 LONG-TERM LOANS FROM RELATED PARTIES 8 1,014,281 429,649 OTHER LIABILITIES Accrued interest expenses - related parties 4 84,005 23,450 Others 26,815 20,110 110,820 43,560 TOTAL LIABILITIES 11,164,306 10,737,489 SHAREHOLDERS' EQUITY Share capital 9 6,022,972 6,022,972 Share premium 1,125,000 1,125,000 Deficit (5,300,931) (4,508,143) TOTAL SHAREHOLDERS' EQUITY 1,847,041 2,639,829 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 13,011,347 13,377,318 0 0 The accompanying notes are an integral part of the financial statements. (UNAUDITED/BUT REVIEWED) VINYTHAI PUBLIC COMPANY LIMITED EARNINGS STATEMENTS (Thousand Baht except earnings per share expressed in Baht) For the period of For the period three months of nine months ended 30th September ended 30th September Note 1998 1997 1998 1997 REVENUES Sales 1,121,084 1,286,460 3,769,816 3,505,649 Interest income 7,400 2,696 18,535 6,928 Other income 392 132 775 1,905 TOTAL REVENUES 1,128,876 1,289,288 3,789,126 3,514,482 EXPENSES Cost of sales 859,763 837,154 2,566,365 2,357,613 Selling and administrative expenses 160,839 144,980 508,723 446,352 Interest expenses and bank loan fees 268,677 235,874 837,143 606,502 Exchange (gains) losses 10 (739,290) (12,921) (1,956,462) 31,082 Directors' remuneration 12 960 960 2,880 2,848 TOTAL EXPENSES 550,949 1,206,047 1,958,649 3,444,397 EARNINGS BEFORE EXTRAORDINARY ITEM 577,927 83,241 1,830,477 70,085 EXTRAORDINARY ITEM :- Exchange loss from the adoption of managed float system 11 - (2,838,201) - (2,838,201) NET EARNINGS (LOSS) FOR THE PERIOD 577,927 (2,754,960) 1,830,477 (2,768,116) EARNINGS PER SHARE Earnings before extraordinary item 0.96 0.14 3.04 0.11 Extraordinary item - (4.71) - (4.71) Net earnings (loss) 0.96 (4.57) 3.04 (4.60) The accompanying notes are an integral part of the financial statements. VINYTHAI PUBLIC COMPANY LIMITED STATEMENTS OF RETAINED EARNINGS (Thousand Baht) For the period of nine months ended 30th September 1998 1997 DEFICIT BALANCE - beginning of period (7,131,408) (1,740,027) NET EARNINGS (LOSS) FOR THE PERIOD 1,830,477 (2,768,116) BALANCE - end of period (5,300,931) (4,508,143) The accompanying notes are an integral part of the financial statements. (UNAUDITED/BUT REVIEWED) (UNAUDITED/BUT REVIEWED) VINYTHAI PUBLIC COMPANY LIMITED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Thousand Baht) For the period of nine months ended 30th September 1998 1997 ORDINARY SHARE Balance - beginning of period 6,022,972 6,022,972 Increase during the period - - Decrease during the period - - Balance - end of period 6,022,972 6,022,972 SHARE PREMIUM Balance - beginning of period 1,125,000 1,125,000 Increase during the period - - Decrease during the period - - Balance - end of period 1,125,000 1,125,000 DEFICIT Balance - beginning of period (7,131,408) (1,740,027) Increase during the period - (2,768,116) Decrease during the period 1,830,477 - Balance - end of period (5,300,931) (4,508,143) TOTAL SHAREHOLDERS' EQUITY 1,847,041 2,639,829 The accompanying notes are an integral part of the financial statements. (UNAUDITED / BUT REVIEWED) VINYTHAI PUBLIC COMPANY LIMITED STATEMENTS OF CASH FLOWS (Thousand Baht) For the period of For the period of three months ended nine months ended 30th September, 1998 30th September, 1998 Cash flows from (used in) operating activities Net earnings 577,927 1,830,477 Adjustments to reconcile net earnings to net cash provided by (paid from) operating activities :- Depreciation 89,092 270,719 Amortisation of pre-operating and deferred expenses 7,980 23,943 Unrealised exchange gains from financing activities (686,863) (1,906,527) Increase in allowance for doubtful accounts - 20,295 (11,864) 238,907 Decrease (increase) in operating assets :- Accounts receivable - trade 58,970 357,568 Amounts due from related companies 89 (162) Inventories 75,868 65,003 Other current assets 14,883 (25,256) Increase (decrease) in operating liabilities :- Accounts payable - trade 10,110 (84,240) Amounts due to related companies 25,195 65,959 Other current liabilities (167,333) (157,913) Other liabilities 17,444 51,095 Net cash flows from operating activities 23,362 510,961 The accompanying notes are an integral part of the financial statements. (UNAUDITED / BUT REVIEWED) VINYTHAI PUBLIC COMPANY LIMITED STATEMENTS OF CASH FLOWS (Continued) (Thousand Baht) For the period of For the period of three months ended nine months ended 30th September 30th September 1998 1998 Cash flows used in investing activities Increase in investment in other company - (43,907) Acquisition of fixed assets (11,396) (20,476) Increase in other assets (146) (184) Net cash flows used in investing activities (11,542) (64,567) Cash flows from (used in) financing activities Cash received from long-term loan - related parties 331,991 331,991 Cash paid for installment of long-term loans (612,763) (1,215,691) Net cash flows used in financing activities (280,772) (883,700) Net decrease in cash and cash equivalents (268,952) (437,306) Cash and cash equivalents at beginning of period 440,065 608,419 Cash and cash equivalents at end of period (Note 13) 171,113 171,113 The accompanying notes are an integral part of the financial statements. (UNAUDITED/BUT REVIEWED) VINYTHAI PUBLIC COMPANY LIMITED NOTES TO INTERIM FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1.1 Sales Sales are the invoiced value, excluding value added tax, of goods delivered after deducting discount and allowance. 1.2 Allowance for doubtful accounts Allowance for doubtful accounts is provided for the estimated collection losses that may be incurred in collection of receivables. The allowance is based on collection experience and a review on current status of receivables outstanding at the balance sheet date. 1.3 Inventories Inventories are valued at the lower of cost (weighted average method) and net realisable value. (UNAUDITED/BUT REVIEWED) 1.4 Investments Investment in associated company is stated on an equity method. Investment in other company is stated at cost. Provision for loss from investment will be set up if the decline in value is of a permanent nature. 1.5 Depreciation Depreciation of fixed assets is calculated by reference to their costs on the straight-line method over the estimated useful lives as follows :- Building and improvement - 5, 30, 50 years Leasehold improvement - 50 years Machinery and equipment - 30 years Furniture, fixtures and equipment - 5, 10, 30 years Vehicles - 5, 10 years No depreciation is provided for land and machinery under installation. (UNAUDITED/BUT REVIEWED) 1.6 Amortisation Pre-operating expenses for project Phase I and Phase II are amortised over the period of 30 years commencing as from 1st August, 1992 and 1st July, 1996 respectively. Deferred share flotation expenses are amortised over the period of 20 years commencing as from 1st January, 1995. 1.7 Foreign currencies Exchange rates adopted :- Foreign currency transactions during the period - at the rates ruling on the transaction dates. Assets and liabilities in foreign currency outstanding on the balance sheet date - at the rates ruling on the balance sheet date Exchange gains and losses are included in determining earnings. 1.8 Earnings per share Earnings (loss) per share is calculated by dividing net earnings (loss) by the number of ordinary shares outstanding at the balance sheet date. (UNAUDITED/BUT REVIEWED) NOTE 2 - CASH IN HAND AND AT BANKS According to the conditions as stipulated in the long-term loan agreement, as of 30th September, 1998, the Company has placed its cash at banks of approximately Baht 167 million (1997 : Baht 72 million) with banks as security against bank loans. However, the Company is able to withdraw these deposits to use for its regular operating expenses. NOTE 3 - ACCOUNTS RECEIVABLE - TRADE As at 30th September, 1998, aging of the outstanding balance of accounts receivable were as follows :- Accounts Receivable General Related Parties Total Thousand Baht Thousand Baht Thousand Baht within current credit term 584,944 164,816 749,760 over current credit term not over 3 months 129,301 4,948 134,249 3 - 6 months 11,616 - 11,616 6 - 12 months 9,914 - 9,914 over 12 months 25,623 - 25,623 Total 761,398 169,764 931,162 Less : Allowance for doubtful accounts (30,000) Accounts receivable - trade, net 901,162 (UNAUDITED/BUT REVIEWED) NOTE 4 - RELATED PARTY TRANSACTIONS During the period, the Company had significant business transactions with its associated and related companies (related by way of holding interest, common shareholders and/or common directors). Therefore, the financial statements reflect the effects of these transactions on the basis determined by the companies concerned and as stipulated in the agreements. The transactions are in the ordinary course of business and the significant transactions are as follows :- For the period of three For the period of nine months ended 30th September months ended 30th September 1998 1997 1998 1997 Million Baht Million Baht Million Baht Million Baht Transactions with associated company : Purchase of raw materials 50 32 151 119 Transactions with related companies : Sales of finished products 172 271 629 626 Purchase of raw materials and finished products 314 361 1,098 993 Royalty expense 22 27 76 73 Interest expenses 19 11 55 23 Freight expenses - 1 - 36 Commission expenses 2 2 8 9 The outstanding balances are separately shown in the balance sheets. (UNAUDITED/BUT REVIEWED) NOTE 5 - INVESTMENT - DEPOSIT WITH FINANCIAL INSTITUTION This represents a promissory note of a finance company, which can be withdrawn in 2002, carrying market interest rate (as at 30th September, 1998, the market rate was 13.45 percent per annum). According to the conditions as stipulated in the long-term loan agreement, the Company has placed this promissory note as security against bank loans. NOTE 6 - INVESTMENTS - RELATED PARTIES The balances as of 30th September were as follows :- Percentage of the Company's interest Amount 1998 1997 1998 1997 Percent Percent Thousand Baht Thousand Baht Investment in associated company Pimai Salt Company Limited 20.4 20.4 203,221 203,221 Investment in related company Thai Olefins Company Limited 5.29 5.29 448,751 404,844 651,972 608,065 According to the latest financial statements, as provided by the management of Pimai Salt Company Limited (supplier of raw material - salt), the accumulated share of profit from investment in this company amounted to approximately Baht 0.6 million. Since the share of profit is insignificant, the Company, therefore, concludes that the investment under the equity method equals to the acquisition cost. (UNAUDITED/BUT REVIEWED) According to the latest financial statements, as provided by the management of Thai Olefins Company Limited (supplier of raw material - ethylene), the networth of this company attributable to the Company's interest was approximately Baht 196.7 million higher than the acquisition cost. NOTE 7 - LONG-TERM LOANS These represent loans from local and overseas banks that provided financing facilities of US$ 289 million and Baht 685 million. These loans are repayable in the years 1996 to 2006. As of 30th September, 1998, there were outstanding long-term loans of US$ 220 million and Baht 560 million (1997 : US$ 244.5 million and Baht 610 million). The loans denominated in US dollar currency are subject to both fixed interest rates and floating interest rates ranging from 6 - 10 percent per annum. The Company has entered into an interest rate swap agreement with overseas financial institutions for part of the loans denominated in US dollar which are subject to floating interest rate. Under the agreement, the Company has fixed the floating interest rate at the rate of 7.4 percent per annum. This agreement matures in August 1999. In order to minimize exchange rate risk of the foreign currency loans, the Company has entered into various forward contracts to purchase US$ 3 million at the rates ranging from Baht 39.62 to Baht 40.29 per US$ 1 for part of the loan repayment to be made in February 1999. (UNAUDITED/BUT REVIEWED) Thai Baht loans are subject to interest at the rate of MOR plus 0.25 percent per annum. Under the loan agreement, the Company shall undertake certain conditions, among other things, to maintain a current ratio covenant of at least 1.2 : 1 . Part of the loans has been guaranteed by local banks. In addition, the loans have been secured by the mortgage/place of the Company+s fixed assets, bank saving accounts and promissory notes. NOTE 8 - LONG-TERM LOANS FROM RELATED PARTIES These represent subordinated loans denominated in US dollar and Thai Baht currencies from related companies. As of 30th September, 1998, there were outstanding long-term loans of US$ 20.8 million and Baht 192.7 million (1997 : US$ 7.4 million and Baht 157.8 million). These loans carry interest at the rates of LIBOR plus 1 - 3.5 percent per annum for the loans denominated in US dollar and at the rates of MLR plus 0.25 - 1 percent per annum for Thai Baht loans. (UNAUDITED/BUT REVIEWED) NOTE 9 - SHARE CAPITAL 1998 1997 Registered Number of shares (shares) 602,450,000 602,450,000 Par value per share (Baht) 10 10 Amount (Thousand Baht) 6,024,500 6,024,500 Issued and fully paid Number of shares (shares) 602,297,199 602,297,199 Par value per share (Baht) 10 10 Amount (Thousand Baht) 6,022,972 6,022,972 (UNAUDITED/BUT REVIEWED) NOTE 10 - EXCHANGE (GAINS) LOSSES For the period of For the period of three months ended nine months ended 30th September 30th September 1998 1997 1998 1997 Million Baht Million Baht Million Baht Million Baht Realised (gains) losses on exchange rate (83.6) 25.1 (120.8) 30.5 Unrealised(gains)losseson exchangerate (655.6) (38.0) (1,835.6) 0.5 Total (739.2) (12.9) (1,956.4) 31.0 As of 30th September, 1998 the bank selling rate for US$ 1 was equal to Baht 39.4737. NOTE 11 - EXCHANGE LOSS FROM THE ADOPTION OF MANAGED FLOAT SYSTEM As presented in the interim financial statements for the period ended 30th September, 1997, the Company deferred exchange losses caused by the fall in the value of the Baht upon the Thailand's adoption of Managed Float System. This was presented as a deduction against shareholders' equity, in accordance with the basis provided under the announcement dated 19th September, 1997 by the Institute of Certified Accountants and Auditors of Thailand. However, on 5th February, 1998, the Stock Exchange of Thailand issued a letter requiring all listed companies to recognise total exchange gains/losses in the earnings statement pursuant to the Accounting Standard Pronouncement No. 30. Therefore, to comply with these principles, the Company had recorded this exchange loss as an expense and presented as an extraordinary item in the financial statements for the year ended 31st December, 1997. For comparative purposes, the financial statements for the periods of three months and nine months ended 30th September, 1997, have been restated, and this resulted in a Baht 2,758 million (Baht 4.58 per share) increase in the net loss for both the period of three months, and nine months. (UNAUDITED/BUT REVIEWED) NOTE 12 - DIRECTORS' REMUNERATION Directors' remuneration represents the benefits paid to the Company directors in accordance with Section 90 of the Public Limited Companies Act, exclusive of salaries and related benefits payable to the managing director who is one of the executive directors. NOTE 13 - STATEMENTS OF CASH FLOWS For the purposes of the statements of cash flows, cash and cash equivalents include cash in hand and at banks and deposit with financial institution with an original maturity of 3 months or less. No comparative figures were presented in the cash flows statements since the statements of cash flows for the period of three months and nine months ended 30th September, 1998 have been prepared for the first time. For the period For the period of three months of nine months Supplemental cash flows information :- Cash paid during the period for Interest paid 443,835 990,392 Corporate income tax - - (UNAUDITED/BUT REVIEWED) NOTE 14 - FINANCIAL INFORMATION BY SEGMENT The Company's operations are in manufacturing and distribution of PVC and related by-products for both domestic and export markets. For the periods of three months and nine months ended 30th September, 1998, the export sales represented approximately 36 percent and 39 percent (1997 : 14 percent and 14 percent) of the total sales respectively. As a result, the Company+s operations involve a single industry segment and are carried on in the single geographic area in Thailand. NOTE 15 - PROMOTIONAL PRIVILEGES The Company was granted the tax privileges under the Investment Promotion Act B.E. 2520 approved by the Board of Investment for manufacture and distribution of PVC and VCM on 15th June, 1988. Subject to certain imposed conditions, the privileges include exemption of corporate income tax on net profit for a period of seven years commencing as from 1st August, 1992 (the date of earning operating income). Profits derived thereafter from the promoted activity shall be subject to income tax at a reduced rate of fifty percent of the normal tax rate for another five years after expire of corporate income tax exemption period. (UNAUDITED/BUT REVIEWED) NOTE 16 - LEASE AND RENTAL COMMITMENTS As at 30th September, 1998, the Company had outstanding lease and rental commitments as follows:- a) Lease commitments in respect of land for its plant for a period of 30 years as from 15th June, 1989 to 14th June, 2019 amounted to approximately Baht 156.7 million. Rental fees are Baht 6.9 million per annum as from 15th June, 1989 to 14th June, 1999 and Baht 7.59 million per annum as from 15th June, 1999 to 14th June, 2019. b) Commitments in respect of motor vehicle operating leases amounted to approximately Baht 9.6 million which are repayable within the year 2001. c) Other lease and rental commitments payable in the future are as follows :- 1998 Million Baht Payable within 1 year 80.6 Payable between 2 - 5 years 143.3 223.9 (UNAUDITED/BUT REVIEWED) NOTE 17 - OTHER COMMITMENTS As at 30th September, 1998, the Company had outstanding commitments as follows :- a) The Company has entered into a license and on-going knowhow agreements with its overseas related company. The fees are payable by the Company on the basis and at the rate as stipulated in the agreements. b) The Company has entered into an agreement to purchase raw materials from a related local company. The Company agrees to purchase raw materials at the quantity and price as stipulated in the agreement. The price is referenced to the US market price. c) The Company has entered into an agreement with its associated company to purchase raw materials produced by this associated company at the quantity and at the price as stipulated in the joint venture agreement. NOTE 18 - BANK GUARANTEES AND AVAL As at 30th September, 1998, there were outstanding bank guarantees and aval as follows :- a) Bank guarantees of Baht 197 million (1997 : Baht 261 million) issued by banks on behalf of the Company in the normal course of business of the Company. (UNAUDITED/BUT REVIEWED EXCEPT NOTE 19 WHICH IS UNREVIEWED) b) Bank aval for export credit facilities of US$ 100.8 million (1997 : US$ 115.2 million) was issued by local banks on behalf of the Company according to the conditions as stipulated in the long-term loan agreement. NOTE 19 - IMPACT OF YEAR 2000 The Company has been implementing the testing, modification and upgrading of its computer hardware and software for operation (ie : production process, sales and accounting systems) to cope with the Year 2000 problem. The project is expected to be completed within the third quarter of 1999. The total cost to implement the action plans for year 2000 compliance is estimated at Baht 34 million. Notwithstanding the above-mentioned remediation effort, there remain risks that some other companies with which the Company has business dealing may not be able to complete their remediation programs in due time and may affect to the Company+s operation. (UNAUDITED/BUT REVIEWED) NOTE 20 - PRESENTATION The presentation of the financial statements has been made in compliance with the Ministerial Regulation No. 7 (1996) as empowered under the Public Limited Companies Act B.E. 2535. Certain amounts of the 1997 financial statements have been reclassified to conform to the current year classification, with no effect on previously reported shareholders' equity. NOTE 21 - APPROVAL OF FINANCIAL STATEMENTS These financial statements have been approved by the Company+s directors. -15- ÿÿÿÿ